Commodity Calls

Corrective fall is likely in MCX-Zinc

Gurumurthy K BL Research Bureau | Updated on February 05, 2019 Published on February 05, 2019

The Zinc futures contract on the Multi Commodity Exchange (MCX) rallied in the past week breaking above the key resistance level of ₹193.5 per kg in line with expectations. The contract surged over 6 per cent intra-week to test the key resistance level of ₹203 as expected. The contract made a high of ₹202.7 on Monday and has come-off slightly from there. It is currently trading at ₹200 per kg.

The key resistance at ₹203 is holding as of now. Since the contract has risen sharply in a very short span of time, a corrective fall is more likely in the coming days. As long as the contract trades below ₹203, a pull-back move to ₹195 and ₹193 is possible in the coming days. However, the broader view will continue to remain bullish. The indicators on the charts are also positive. The 21-day moving average has crossed over the 55-day moving average. It is now on the verge of crossing over the 100-day moving average. This is a positive signal indicating that the downside could be limited.

As such an eventual break above ₹203 will see the MCX-Zinc futures contract rallying towards ₹215 over the medium term.

Trading strategy

Traders with a medium-term perspective can go long on dips at ₹195 and ₹193. Stop-loss can be placed at ₹183 for the target of ₹212. Revise the stop-loss higher to ₹202 as soon as the contract moves up to ₹208.

Global trend

The Zinc (3-month forward) contract on the London Metal Exchange (LME) has risen, breaking above the key resistance level of $2,730 per tonne in the past week. This level of $2,730 will now act as a good support. Next resistance is at $2,860 which is likely to be tested in the near term. A strong break above $2,860 will then pave way for the next targets of $2,900 and $2,940.

Note: The recommendations are based on technical analysis and there is a risk of loss in trading

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